(23 September 2024 – Global) Falling interest rates on the back of the US Federal Reserve’s dovish policy settings targeting a “soft landing” for the economy could reignite the merger and acquisition (M&A) market already showing promising signs of life.
The Fed cut its benchmark rate by 50 basis points this month and signalled further declines for Q4 2024.
In addition to banks as buyers, private equity (PE) firms and investor groups have been “holding their breath for months” in anticipation of the decision from the Fed. Many will take advantage of the opportunity to act on deals that have been waiting to move forward American Banker Deputy Editor Jim Dobbs reports.
More acquirers could add to competition and support stronger deal pricing.
“Already, updated data shows a robust increase in value, influenced significantly by large-scale transactions, underscoring the sector’s potential for transformative deals” KPMG Financial Services Deal Advisory and Strategy Lead, Jonathan Froelich, commented in a report.
“The decision to cut rates is not a surprise, but the 50 basis point interest rate cut is a signal to the market that the Fed feels comfortable that the declining inflationary pressures are sufficient to bring inflation closer to the target rate of two percent. This cut will spur investment in M&A activity” stated CohnReznick Managing Principal, Jeremy Swan.
“Many companies we’re working with possess healthy balance sheets and CEOs know that M&A remains the fastest path to transforming their companies and keeping pace with their competition. The M&A market has arrived at an inflection point. While the cost of capital remains high, CEOs are going to be energised by the 50 basis points rate cut and the Fed’s decision to embark on its easing cycle” said EY Americas Vice Chair for Strategy and Transactions, Mitch Berlin.